Bern Corporation is considering an investment in equipment that would cost$50,000 and provide annual cash inflows of $14,000. The company's required rate ofreturn is 12%; the internal rate of return for the investment is 10.5%. Should thecompany make this investment?a) Yes, since the internal rate of return is less than the company's required rateof return.b) No, since the internal rate of return is less than the company's required rateof return.c) The answer cannot be determined.d) Yes, since the internal rate of return is more than the company's requiredrate of return.

When comes the decisions regarding investment in a project there many criteria that are used in…

Answered: nsidering an investment in equipment…

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter11: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 8P

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Your division is considering two investment projects, each of which requires an up-front expenditure of 25 million. You estimate that the cost of capital is 10% and that the investments will produce the following after-tax cash flows (in millions of dollars): a. What is the regular payback period for each of the projects? b. What is the discounted payback period for each of the projects? c. If the two projects are independent and the cost of capital is 10%, which project or projects should the firm undertake? d. If the two projects are mutually exclusive and the cost of capital is 5%, which project should the firm undertake? e. If the two projects are mutually exclusive and the cost of capital is 15%, which project should the firm undertake? f. What is the crossover rate? g. If the cost of capital is 10%, what is the modified IRR (MIRR) of each project?
Assume a company is going to make an investment in a machine of $825,000 and the following are the cash flows that two different products would bring. Which of the two options would you choose based on the payback method?
Benson Corporation is considering an investment in equipment that would cost $50,000 and provide annual cash inflows of $14,000. The company's required rate of return is 9%; the internal rate of return for the investment is 10.5%. Should the company make this investment?A. Yes, since the internal rate of return is less than the company's required rate of return. B. No, since the internal rate of return is less than the company's required rate of return. C. Yes since the internal rate of return is more than the company's required rate of return. D. The answer cannot be determined.
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Celestial Crane Cosmetics is analyzing a project that requires an initial investment of $3,225,000. The project's expected cash flows are: Year Cash Flow Year 1 $375,000 Year 2 -125,000 Year 3 500,000 Year 4 400,000 If the company's WACC is 8% and the project has the same risk as the firm's average project, what is the project's modified internal rate of return (MIRR)? Should you accept or reject this project?
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An investment has an installed cost of $787,350. The cash flows over the four-year life of the investment are projected to be $312,615, $304,172, $245,367, and $229,431. a. If the discount rate is zero, what is the NPV? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) b. If the discount rate is infinite, what is the NPV? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations
A firm is considering a project that will generate perpetual after-tax cash flows of $16,500 per year beginning next year. The project has the same risk as the firm's overall operations and must be financed externally. Equity flotation costs 14 percent and debt issues cost 3 percent on an after - tax basis. The firm's D/E ratio is 0.5. What is the most the firm can pay for the project and still earn its required return?

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